A former FCC chairman has admitted that ISP data caps are about making more money, not paying for managing network congestion as ISPs like to claim to their customers. Data caps, also known as broadband caps and bandwidth caps, have long been unpopular with broadband internet customers. While numerous ISPs have explained away the necessity of bandwidth caps to maintain quality service, former FCC chairman Michael Powell recently admitted it’s all about cold, hard cash.

Michael Powell is now the president of the National Cable and Telecommunications Association. According to BroadcastingCable.com, when Powell was asked about data caps being for network congestion management his response was rather blunt:

“That’s wrong. Our principal purpose is how to fairly monetize a high fixed cost.”

Powell says that the costs for initially deploying and maintaining the physical network cables are “enormously high.” He believes that Internet Services Providers (ISPs) are justified in figuring out creative ways to recoup those initial investments:

“It is a completely rational and acceptable process to figure out how to fairly allocate those costs among your consumers who are choosing the service and will pay you to recover those costs.”

Some ISPs choose to have a hard data cap, where if an internet user reaches the cap they are cut off for the month. Other ISPs choose to charge the customer a fixed rate for every additional gigabyte of bandwidth consumed after the maximum is reached. The first plan is widely unpopular with customers, leading many ISPs to implement the second method or simply forego data caps.

According to Tech Spot, Powell compares the second plan to paying an electric bill, whereby people who use more, pay more. The former FCC chairman also invoked free-market principals, suggesting that data caps nurture efficiency and reduce wasteful behavior.

“If you have an unlimited pricing model, you can basically say: ‘I can build an app or a service and I don’t really concern myself with how much bandwidth consumption it will take…There is no disciplining element.”

According to Wired, Time Warner Cable generated $1.13 billion in revenue during Q1 2011 but only spent 3 percent of those earnings on bandwidth. Additionally, HowStuffWorks concluded that even for ISPs running high-end networks with few expenses spared network bandwidth should cost ISPs around $0.02 per gigabyte. ISP companies also receive government telecommunication subsidies, so you could say that their costs related to network congestion are pretty much covered.

Considering all this, do you think that ISPs are justified in implementing data caps at all? Or perhaps you think that ISPs should charge by the gigabyte similar to electric companies. After all, for those that use the internet less this might mean your overall ISP bill might drop.